Client Alert

Private Foundations and Nonprofits Risk Losing Tax-Exempt Status and a Possible End to Short-Term GRATs

June 17, 2010

Lisa Lafourcade & Megan S. Genovese

As of May 17, 2010, the Internal Revenue Service is automatically revoking the tax-exempt status of private foundations and nonprofits if they do not file the required federal tax return for private foundations and nonprofits Form 990 for three (3) consecutive years.

In addition, on March 24, 2010, the House of Representatives passed H.R. 4849, The Small Business and Infrastructure Jobs Tax Act of 2010, which would result in significant changes to Grantor Retained Annuity Trust (GRAT) planning. GRATs are trusts, codified in the Internal Revenue Code at Section 2702, which are commonly used to transfer the appreciation on assets from parents to children without incurring federal gift or estate tax. Although this Act has not yet been passed by the Senate, time is now of the essence if you have been contemplating the use of a short-term GRAT to transfer your wealth.

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